International Journal of Law, Economy and Management 1 (2005) 13Ð18

Academic Transfer

Terry A. Young Consulting Editor Technology Group, Inc.

Academic technology transfer is the passage of knowl- Academic is the foundation for technology edge from its creator to another person or organization transfer, the “factory” that creates the potential “prod- for some purpose or public benefit. Academic technol- ucts” for commercial application. Some ogy transfer occurs every day in a , in the focus upon and instruction only, and not collegial exchange of research data between faculty upon research; such institutions do not conduct suffi- members; the knowledge passed from the teacher to cient research to generate the quantity and the quality the student; faculty publications and reports; presenta- of innovation that warrant the creation of offices to tions of research results at conferences; expertise com- manage intellectual property and technology transfer. municated to industry partners, and many other means. For example, there were 2,363 four-year degree granti- Academic technology transfer is the very heart of the ng institutions of higher education in the United States traditional missions of academia: education, research in 2000.1 Yet, only an estimated 200 universities in the and public service. United States accomplished sufficient research to war- rant establishing a formal office or process to manage 1. A More Focused Definition IPR and technology transfer.2 After more than twenty years of valuable experi- A more focused definition of academic technology ences, the international Association of University transfer has emerged in the last twenty years, perhaps Technology Managers (AUTM) today promotes four with origins in the “Bayh-Dole Act of 1980,” an primary reasons for academic technology transfer: amendment to the United States code. This leg- • Facilitate the commercialization of research results islation enabled U.S. universities to claim ownership for the public good rights in intellectual property arising from research • Reward, retain and recruit faculty funded by the U.S. . To manage this intel- • Induce closer ties to industry lectual property, U.S. universities began to focus upon • Generate income and promote economic growth3 the protection of their through U.S. and international patent systems in the 1980s, and to enter 2. The Academic Technology Transfer into contracts with industry for the commercial devel- Process — The Foundation opment of these inventions. This bold experiment by the U.S. Congress was tremendously successful in 2.1. Mission Statement achieving its goal of the commercialization of univer- To begin with, a university must determine if its sity inventions. As a result, the Bayh-Dole Act inspired research base warrants a dedicated technology transfer many other countries in the 1990s to adopt their own initiative or office. In many cases, a university may systems for the commercial application of university possess some research with commercial potential, but research results. Accordingly today, “academic tech- not sufficient volume to create a dedicated commer- nology transfer” is generally understood to refer to the cialization service. In such cases, the institution might commercialization of university research results, and is consider: (i) partnering with other universities in the defined in this paper as the transfer of university- region to create one program to serve all; (ii) assigning owned intellectual property rights (IPR) to industry for technology transfer activities to another office within commercial application and public benefit. the institution, such as the university’s research man-

ISSN 1349-7723 © 2005 IPAJ All rights reserved. 13 T. A. Young agement office; (iii) partnering with local community interest, and many more requirements. As examples, organizations, such as “techno the intellectual property policies for most research- marts”; or (iv) contracting with another capable orga- intensive universities in the United States and in many nization to manage the limited opportunities. other countries are found on the AUTM website This paper assumes that the university has sufficient (www.autm.net). research to warrant the creation of a dedicated technol- ogy transfer office or a “TLO”. A TLO must have a 2.3. Establishment of a Technology Licensing Office clear and well-understood mission statement to guide (TLO) its activities and decisions. In a study recently con- The university’s mission statement and its IPR policies ducted for the U.S. National Governors Association, impact the internal infrastructure to support research Dr. Louis Tornatzky identified a “clearly articulated and technology transfer. Internationally, there are mission statement” as one of seven critical attributes many different forms of university technology transfer of an exemplary TLO.4 The TLO’s mission statement organizations, such as: (i) an office or department should be brief, establishing its operational focus and within the university typically described as a setting the expectations of its customers. The TLO’s Technology Licensing Office (TLO), an Office of mission should also be consistent with the stated mis- Technology Transfer (OTT) or some similar name; (ii) sion of the university. As an example, the mission an external office, established either as a for-profit statement of the TLO at The Texas A&M University company (“UNICO” = http://www.unico.org.uk/) or a System clearly identifies service to research faculty as not-for-profit organization such as a foundation; (iii) its primary mission: “The TLO serves the faculty to both an external organization and a university office transfer research results to commercial application for working together; and (iv) an external company to per- public benefit.” form contract services for the university on a project- by-project basis. 2.2. Policies and Procedures The size of a TLO typically is reflective of the uni- Next in importance in establishing a TLO are clear versity’s research budget, the size of the subsidy pro- policies and procedures to provide guidance to the vided to the TLO by a third party (government), or technology transfer process. Policies must be transpar- both. In 2002, the author published a paper entitled, ent to all of the university’s constituents (administra- “Financing Technology Licensing Offices,” which tors, faculty, students, industry partners, government, indicated that funding for TLOs is provided from the public, etc.). Clearly defined and easily understood many different sources from country-to-country, rules defining ownership of intellectual property must including government funding, private , be at the core of the policy. There is no “correct” way third party philanthropic foundations, percentage of to define ownership. In fact, it is defined and managed earnings and the like.5 differently around the world: some countries require institutional ownership of inventions; some countries 3. The Academic Technology Transfer reserve ownership for the faculty inventors; some Process — Operations countries stipulate that rights in inventions are jointly owned by the university and the faculty inventor; and 3.1. Identifying with Potential some countries leave the determination of ownership Commercial Value to each university. In the United States, each university University research may lead to innovations with to free to choose its own rule regarding IPR owner- potential commercial value. The process for identify- ship; in every university but one, the institution places ing innovations with commercial value should be ownership of IPR in the university (the exception is clearly defined and understood in written protocols.6 A the University of Wisconsin). Regardless of the few U.S. universities employ individuals whose sole approach chosen, without clarity in the ownership of job function is to monitor faculty research, and to col- IPR arising from academic research, technology trans- laborate with faculty to identify research initiatives fer is not possible. that may lead to innovations with potential commercial Obviously, policies should address other issues criti- value. Yet, the most prevalent model in the United cal to the success of academic technology transfer pro- States is to rely upon the faculty researchers them- grams, such as distribution of income, the disclosure selves to voluntarily bring forward their innovations to process, assignment of responsibility for seeking the attention of the TLO by submission of a formal patent protection, management of potential conflicts of “Disclosure of .” The disclosure describes

14 Academic Technology Transfer the unique technical features of the discovery, as well made, as described above in the evaluation process. as addresses certain questions impacting legal or con- Funds are placed “at risk” by the university when it tractual issues (correctly naming the inventors, identi- has no immediate source of external funding to prose- fying research contracts that funded the discovery, not- cute an unlicensed invention. Finally, the patent prose- ing any publication dates, and the like). Most disclo- cution becomes even more expensive if international sure of invention forms utilized by U.S. universities patent protection is sought. are linked to the AUTM website. TLOs secure funding for patent applications from Upon receipt of a disclosure, the TLO establishes a many different sources. In some countries, the national physical project file, and enters relevant information or regional government provides the funding. In some for the project into an electronic database. The project countries, philanthropic foundations provide money to is assigned to an individual, typically called a project TLOs for patent applications. In some countries, patent manager or licensing manager, to work closely with expenses are sometimes funded from royalty income the inventor to develop a strategy for protecting and accumulated by the TLO. Furthermore, even within commercializing the invention. one country, the funding of patent expenses may be managed differently from one university to the next. 3.2. Evaluating Disclosures of Invention For instance, in the United States, while no govern- The first step in developing a commercialization strat- ment funding is provided for patent ex-penses, TLOs egy is to evaluate the invention, encompassing five pay such expenses from a variety of sources: from roy- broad areas of critical importance: (i) ownership of the alty income, by the university itself (typically in an innovation; (ii) the innovation’s technical and develop- annual patent budget), or from the inventor’s college ment stage (an unproven idea versus a prototype, for or department. The model utilized varies from univer- instance); (iii) “patentability” of the innovation; (iv) sity to university. the invention’s market potential and its competition; Likewise, the level of patent expenditures varies and (v) the qualities of the inventor (enthusiasm, repu- greatly from one institution to another, impacted by tation, etc.). factors such as the patent budget, the research budget, The evaluation process may result in a number of the income stream to the TLO, the number and quality results (this list of examples is not all inclusive): of invention disclosures, and the institutional success • The TLO may determine that there is some barrier to in licensing. The AUTM Annual Licensing Survey for commercialization that warrants closing the file. No FY2000 indicated that among the Top 25 Research further time, money or other resources are devoted Universities in the United States, legal expenses to the project by the TLO. The TLO may provide a incurred by the TLO as a percentage of the institu- “Release of Rights” to the inventor upon request. tion’s sponsored research ranged from 1.65 percent to • A corporate research sponsor may hold a first right approximately .05 percent.7 Analyzed in another way, to pursue commercialization. legal expenses incurred as a percentage of license • The TLO may file a patent application immediately income among the Top 25 U.S. Research Universities to protect the innovation. This decision might be in FY2000 ranged from almost 95 percent to less than made upon the basis of a number of factors, such as 10 percent of the income stream. Finally, analysis of a pending publication date, other institutions con- data in the AUTM Licensing Survey for FY2000 ducting very closely related research, the perceived reveals that the percentage of disclosures for which market value of the innovation and the like. patent applications are filed varies from institution to • The TLO may enter into negotiations with a licensee institution, ranging from 100% to 45% of invention identified in the evaluation process, before or after disclosures.8 filing a patent application. In the event that negotia- tions ensue before a patent application is filed, a 3.4. Transferring University Innovations to the Nondisclosure Agreement is utilized to protect the Corporate Sector “patentability” of the invention during negotiations. Traditionally, faculty members claim “academic free- dom” to research topics of interest within their area of 3.3. Protecting Intellectual Property Rights scientific expertise for the advancement of knowledge Patent prosecution is an expensive process. Very few if and the education of students; these research interests any TLOs have unlimited resources to file patent may have no relevance to the commercialization inter- applications for every disclosure or innovation ests of the TLO. Industry-funded research is more like- received from faculty. Difficult decisions must be ly to result in technology with commercial application

15 T. A. Young than is research funded from other sources. In a land- tion other than “enter as many doors as possible” in mark study published in the 2000 AUTM Journal, a large corporation, hoping that one will open to the economists Jerry and Marie Thursby reported the licensing opportunity! results of a survey of hundreds of companies that had • Marketing tools such as invention briefing papers, licensed academic inventions. When asked how they press releases, direct mail campaigns, participation became aware of the innovation eventually licensed in industry trade shows, posting of the technology from a university, the companies most often cited the briefings on the internet, and the like are often uti- personal relationship between their employees and lized by TLOs to identify and reach the industry employees at the subject university. Second, the com- contact person. panies reviewed peer journals in the relevant field, as • Once identification of a contact person in the compa- well as issued , and contacted the author or ny has been made, “face-to-face” contact is most inventor if there was commercial interest in the inno- appropriate when possible to introduce the opportu- vation described in the publication. Finally, the mar- nity. keting effort of a TLO was of last and least importance Finally, as stated above, the goal of all of these mar- to the companies in identifying an innovation of keting efforts is to find a company willing to devote importance to the company. These survey results indi- the time and resources to the university innovation to cate at least two important recommendations. First, as the marketplace; negotiations with that prospective an “industry,” university technology transfer profes- partner now begin. sionals continually should seek better ways in which to market their portfolio of . Second, the fac- 3.5. Negotiating License Agreements ulty inventors rather than the TLO are the most effec- The basic principle of negotiation is that the university tive marketing agents, and subsequently, TLOs should transfers its intellectual property rights in an invention support the faculty members’ research interests in all to a licensee (assuming an exclusive licensee) for con- ways possible.9 sideration provided by the company to the university Despite the results of the Thursbys study, many pre- and a firm commitment by the licensee to take the sentations at technology transfer workshops are devot- product to the market. Many books have been written ed to how TLOs can better market their portfolio of to explore this very basic principle, including topics technologies “available for licensing.” The obvious such as drafting license agreements and negotiation goal is to identify one or more industry partners will- strategies. Some basic principles of university licens- ing to devote time and valuable resources to develop a ing follow: commercial grade product from university research. • Because university innovations are embryonic or Other points to consider in marketing follow: “early stage,” focus is often placed upon “perfor- • When the research which led to the invention is mance milestones” to be achieved by the industry sponsored by an industry partner, then the choice for partner in order to maintain or hold the license. Such transfer of the innovation is usually determined by milestones are critical to achieving the public mis- the research contract. sion of universities.10 • TLOs must be talented in conducted market research • The management of patent rights is an additional to help them identify market segments, applications focal point for negotiation. Universities often seek to and potential licensees for an invention. Marketing license inventions before a patent filed for the inven- information may come from a variety of sources tion has issued, impacting the value of the transac- including but not limited to the TLOs own list of tion, but placing risk upon the licensee. In such case, contacts and friends; databases (public databases and the license agreement typically terminates if the commercial database services); and the inventor, the patent fails to issue. inventor’s students and the inventor’s former stu- • The “type” of technology often determines whether dents. the university will negotiate for an exclusive or non- • Upon identification of potential licensees, the TLOs exclusive license. Innovations that may result in pro- marketing efforts only begin. The TLO must next prietary products are most often licensed exclusive- identify the individuals whom to contact within the ly, while biotech tools, software and other basic companies. potential corporate partners. Should first technologies (as opposed to proprietary products) contact be made with the corporate president, the may be licensed non-exclusively. director of marketing, the director of R&D, or the • Furthermore, an exclusive license is often necessary chief scientist? There is no easy answer to this ques- to induce the investments necessary to commercial-

16 Academic Technology Transfer

ize the invention and benefit the public, the primary Intellectual Property Organization, private philan- goal of technology transfer. thropic foundations, and government agencies — are Once a contract is negotiated and executed, the work working to assist developing nations to create academ- of the technology transfer office is not concluded. The ic technology transfer programs. The future for acade- TLO must record, monitor, manage and maintain the mic technology transfer is very positive! agreement. Contract management requirements include both fiscal requirements (payment of fees and References royalties, reimbursement of patent expenses, etc.) as well as performance milestones and other non-fiscal 1 National Center for Education Statistics, http:// requirements. In the United States, the magnitude of www.nces.ed.gov//pubs2002/digest2001/tables/ work in management of the portfolio of accumulated PDF/table005.pdf license agreements over time has resulted in the cre- 2 In FY2000, 167 U.S. universities, hospitals and ation of both accounting offices and paralegal offices research institutes responded to the AUTM Licensing within the larger TLOs. The scope of the work has Survey. grown as well to include such functions as “accounts 3 www.autm.net payable” and “accounts receivable,” auditing of 4 Louis G. Tornatzky, “Building State Economies by licensees, protecting the university in the event of Promoting University — Industry Technology bankruptcy of the licensee, assuring that the licensee Transfer,” National Governors Association, 2000. achieves performance milestones, assuring that the http://www.nga.org/center/divisions/1,1188,C_ISSUE licensee does not become delinquent in its payments, _BRIEF^D_653,00.html amending or terminating existing contracts for any 5 See http://www.oecd.org/dataoecd/17/56/16212536. number of reasons as might be set forth in the agree- pdf, pages 63Ð67. ment. Additionally, electronic and “relational” data- 6 The written protocol for IPR management by the TLO base management systems — focused upon the needs for The Texas A&M University System may be found of technology transfer offices — are now available to at: http://tlo.tamu.edu/documents/INFO/tloprotocol. manage all of these complex details. pdf 7 IPR evaluation and IPR valuation are quite different 4. Conclusions and distinct processes. Evaluation seeks to assess the opportunities for identifying a corporate partner for In the introduction to this paper, academic technology commercialization of an invention. Valuation seeks to transfer was defined as “the transfer of university- assign a monetary value to the innovation. In the owned intellectual property rights (IPR) to industry for United States, TLOs spend much time on evaluation, commercial application and public benefit.” And as and very little time on valuation. Evaluation is critical demonstrated in this paper, academic technology trans- for making patenting decisions and developing com- fer is complex in implementation. Offices established mercialization strategies, while valuation holds little to manage this process typically have many individu- value to the TLO, as the monetary value of the inven- als and organizations to which they must be account- tion is determined by “what the market will bear,” and able in some way, such as the university administra- not by analytical economic studies. tion, the faculty inventors, industry, the government, 8 A disclaimer must be made: there is a not a strict “one- and the public. Many of these individuals and groups to-one” relationship for Disclosures filed with the have growing expectations, and in some cases, com- TLO in any year and the Patent Applications filed by peting expectations. In general, it can be concluded the TLO in the same year. For instance, a Disclosure that the complexity of academic technology transfer filed with the TLO in 2003 might not be filed as a increases every year, as the importance of intellectual patent application until 2004. Additionally, a single property to the academy increases and as more vari- Disclosure filed with the TLO may result in multiple ables outside the control of the university are intro- patent applications, including but not limited to duced. Despite the many challenges, academic tech- Continuation-in-Part Applications and Divisional nology transfer is growing in importance and activity Applications. These circumstances account for four around the world. The countries active in this arena — institutions among the Top 25 Research Universities such as the U.S. and Japan — increase their perfor- filing more patent applications than Disclosures of mance statistics every year. Additionally, many organi- Inventions received in FY2000. zations — such as the World Bank, the World 9 Jerry and Marie Thursby, “Industry Perspectives on

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Licensing University Technologies; Sources and requiring partners committed to a significant product Problems,” Jerry and Marie Thursby, AUTM Journal, development effort. Richard Jensen and Marie XII, 2000. (http://www.autm. net/index_ie.html) Thursby, “Proofs and Prototypes for Sale: The Tale of 10 The most predominant characteristic of university University Licensing,” Working Paper 6698, National technology is its “embryonic stage of development,” Bureau of Economic Research, 1998.

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